Financial Accounting and Its Limitations - 1184 Words

What are the major limitations of Financial Accounting? Explain with the help of Examples. What are the alternatives to overcome these limitations? Financial accounting can be defined as reporting of the financial position and performance of a firm through financial statements issued to the external users on a periodic basis. It is a field of finance that treats money as a means of measuring economic performance instead of treating it as a factor of production. It encompasses the entire system of monitoring and control of money as it flows in and out of the organization in terms of assets and liabilities, and revenues and expenses. Financial accounting gathers and summarizes financial data to prepare various financial reports such as†¦show more content†¦Because, financial accounting does not records according to inflation so its result does not show true position of business. 6.Incomplete knowledge of costs From cost point of view, financial accounting is incomplete. In financial accounting, accountant does not calculate each and every product’s total cost. So, financial accounting does not help to determine the price of product of business. 7. Financial statements are affected from personal judgment Many events of financial statements are affected from personal judgment of accountant. Accountant decides method of calculating depreciation, rate of provision of doubtful debts and stock valuation method. Thus, financial statements do not show true and fair view of business. 8. No detail information about cost Financial accounting provides information as a whole in terms of income, expenses, assets and liabilities. It does not provide detail of the cost involved by department, processes, products services or other unit of activity within the organization. 9. No cost control method It does not have proper mechanism to control expenditure on various elements of cost, size, material and labor. As a result, misappropriation, wastage and losses of material are left unchecked. Proper utilization becomes impossible and suitability of different labor incentive plan goes without evaluation. 10. No information on efficiency It doesShow MoreRelatedTraditional Financial Reporting and its Limitations962 Words   |  4 PagesIntroduction In a more general term, financial statement states the details of an organization, entity and business financial activities. It provides information about the financial performance, position as at a given date, changes in financial position, etc., that are useful for economic decision. Some of the information content may include the statement of an entity’s assets (non-current and current), liabilities (short and long time), ownership structure, and statement of income, expenditureRead MoreComputerized vs. Manual Accounting1630 Words   |  7 PagesComputerized Accounting should completely replaces Manual AccountingPrepared By : Ali H. 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